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The Unpredictability of Oil Prices Continues

 

It has been reported that oil prices have recovered after hitting a more than six-year low as fears continue to grow around a mismatch between global supply and demand. Most expect prices to begin falling again after the surprise Chinese currency devaluation early this week and the continued strong supply from shale oil in the U.S.

Licensed under CC - credit Flickr user: Andrew Boggett
Licensed under CC – credit Flickr user: Andrew Boggett

U.S. bank Citigroup Inc. slashed its outlook for oil prices moving forward now predicting the crude prices will stay below $50 per barrel until at least midway through 2016.

Oil supply from the USA has exceeded most expectations and price volatility continues to be an issue for the resource in general – the cost per barrel was at over $80 in 2014.

The fact that there are concerns about “too little demand” represents a fundamental paradox and flaw in an energy structure that relies on oil. High prices are bad, because they drive the cost of everything else up. In that situation, positive innovation reduces oil consumption and reduces the cost of other things. However, low prices are not necessarily a good thing, if they are reflective of oversupply and low demand. Price volatility can be expected to return when the market “corrects” the oversupply issue, but what does positive innovation look like in this scenario?

Perhaps the simplest solution is to more towards an energy system, which is more resilient and where supply fluctuations are less of a challenge. Even in a period where oil prices are very low, the case for renewable energy is strong.

Source: Oil Prices Slide To 6-Year Low

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Seb Egerton-Read

Seb Egerton-Read

Seb writes daily content for Circulate across the full spectrum of the website's topics. Previously he has spent five years as a freelance writer for a number of websites and blogs. You can e-mail Seb at seb[at]circulatenews.org

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